Final Exam Flashcards by Summer Schoening

Incremental Analysis

process of identifying financial data that change under different courses of action (NO TVM)

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Joint Costs

all costs incurred, in joint products, up to the point in manufacturing where they are separately identifiable.

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Joint Products

multiple end-products from single raw material, similar processes

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Opportunity Cost

lost potential benefit

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Relevant Costs and Revenues

costs and revenues that differ across alternatives

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Sunk Cost

cost incurred in the past that can’t be changed, shouldn’t be factored into future decisions

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Incremental Analysis uses what type of costing?

activity-based costing; identifies relevant costs accurately

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Net income considerations for special orders within plant capacity ?

will not increase fixed costs, only consider variable costs for net income.

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Accept special order at special price?

if at full capacity, likely for order to be rejected. Special order would have to absorb additional fixed costs and normal variable costs to be accepted.

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Make or Buy?

buying eliminates all VC but only some of FC. Some FC will remain if product is bought. Opportunity cost of time/resources?

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Sell or Process Further?

Process further if revenues > additional direct labor, materials, overhead, VC, FC

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Repair, Replace, Retain

Is increased income from replacement/repair more than the cost of new, maintenance, minus sale of old?

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In Repair, Replace Retain decision, the book value of the asset isn’t relevant to the decision because it is a __________.

sunk cost

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If equipment is replaced, the ______ of the old equipment is recognized as a _______.

book value of the old equipment is recognized as a loss in the current period.

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Target Cost Formula=

Market Price - Desired Profit

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Desired Profit Formula=

Invested Assets x Min Rate Of Return

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Cost-Plus Pricing

adding a markup to the cost base to determine target selling price

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Markup Formula=

Selling Price - Cost

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Target Selling Price Formula=

Cost + Markup

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Markup is also known as ____________.

desired ROI per unit

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Variable-Cost Pricing

add a markup to variable costs

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Time-and-Material Pricing

two rates: labor rate and materials used (material loading charge)

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Labor Rate includes ______.

direct labor costs (hourly + fringe), selling & admin, and desired ROI per hour

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Material Loading Charge includes _______.

(annual costs for purchasing, receiving, handling and storing materials) / (costs of parts/materials) + desired profit margin

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Transfer Price Definition

price when goods are transferred between divisions of the same company

Negotiated Transfer Price

agreement between division managers

Minimum Transfer Price

VC + Opportunity Cost (no excess capacity)

Transfer price does not account for ______ when producing in excess capacity.

contribution Margin (Opportunity Cost)

In excess capacity, the opportunity cost of transferring vs selling is the _________.

contribution margin

Minimum transfer price is _____ in excess capacity because Op Cost is ____.

less in excess capacity because opportunity cost is zero

Opportunity Cost when units transferred unequal to units forgone

= ((Selling $ - VC) x Units Forgone) / Units Transferred Internally

Cost Based Transfer Price does not reflect _____.

the division's true profitability

Market-Based transfer prices are considered best because they are _____.

objective

Absorption-Cost Pricing

GAAP: includes both V and F manufacturing costs, excludes V and F selling & admin costs. Cover selling & admin with markup

Markup % =

(Desired ROI Per Unit + Selling & Admin Per Unit)/ Manufacturing Cost per Unit

Variable Cost Pricing markup must provide for ______.

FC and ROI

VC pricing is more consistent with _______ analysis.

cost-volume profit

VC pricing provides info needed for pricing ______ orders.

special

Budgetary Control does the following 4:

1. Identifies report 2. states frequency 3. purpose 4. primary recipients

Static budget

single level of activity

Responsibility Accounting

reporting costs for where the manager has authority

Management by exception

actual vs planned objectives

Cost center

incurs costs but does not generate revenues. Production or service departments

Profit center

incurs costs AND generates revenues. Departments of retail store, branches of banks

Investment center

incurs costs, generates revenues, and has control over assets/ ROI

controllable margin

(Revenue - VC) - controllable fixed costs

Are noncontrollable fixed costs reported?

ROI formula=

Controllable margin / Avg operating assets

Residual income formula=

Controllable Margin - (Min Rate of Return x Avg Op Assets)

A standard is a ___ amount.

unit

A budget is a _____ amount.

total

direct materials price standard

cost per finished unit of product of direct materials that should be incurred

direct materials quantity standard

the quantity of direct materials that should be used per unit of finished goods.

direct labor price standard

rate per hour that should be incurred for direct labor

direct labor quantity standard

the amount of time that should be required to make one unit of product

predetermined overhead rate formula=

budgeted overhead costs / operating activity

Balanced scorecard definition

financial and nonfinancial info that links performance to goals

What are the 4 balanced scorecard perspectives?

financial, customer, internal, learning

standard cost accounting system definition

double-entry system. Standard costs in entries and recognize variances later

Cash payback period formula=

Cost of Capital Investment / Net Annual Cash Flow

What are the two discounted cash flow techniques?

NPV and IRR

NPV Discount method

compare present value with capital outlay required

NPV of investment formula=

NPV of cash flows - capital investment

Choosing a discount rate?

cost of capital, interest rate on loan

Profitability Index Formula=

PV of net cash flows / Initial Investment

IRR Definition=

interest rate that causes the PV of the proposed cap e expenditure to equal the present value of the expected cash flow

IRR formula (when cash flows are equal)=

Capital Investment / Net annual cash flows

If IRR is ___ than the required rate of return, reject the proposal.

less

Annual rate of return formula=

Expected annual net income / average investment

Annual rate of return method is different from NPV or IRR because it is on an _____ basis rather than ____.

accrual basis rather than cash

Average Investment formula=

(original investment + value at end of life) / 2

A major limitation of the Annual Rate of Return method is that it does not consider __________.

the time value of money

Final Exam Flashcards

(72 cards)